Several governments all around the world have pledged to fight climate change and invest in clean energy solutions. In the United States, Joe Biden’s administration has drafted policies that will accelerate the demand for electric vehicles. The Chinese government is also providing subsidies to drive demand higher. 

Therefore, companies part of the electric vehicle (EV) space are well poised to benefit from this trend.  This includes ancillary infrastructure companies, such as QuantumScape (QS - Get Rating) and Microvast (MVST - Get Rating), interesting potential long-term investments.

However, investors should also note that this is a very nascent industry, and not all companies will succeed.  So let’s see whether QuantumScape or Microvast is a better investment today.

QuantumScape is valued at a market cap of $8.65 billion

A development stage company, QuantumScape is engaged in the production and commercialization of solid-state lithium-metal batteries for EVs. It’s a pre-revenue company valued at a market cap of $8.65 billion.

QuantumScape believes solid-state batteries are a key component that will accelerate the shift towards EVs. It is currently the only such battery manufacturer with automotive OEM (original equipment manufacturer) validation.

The company ended the quarter with $1.57 billion in cash and has deployed $300 million in capital expenditure to date. It has over 200 patents and patent applications in process and has partnered with Volkswagen via a joint venture.

QuantumScape claims its battery has a higher energy density compared to other lithium-ion batteries. It also explains that these batteries can be charged faster and have a longer range which may be a game-changer for QuantumScape.

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Alternatively, it will take a few years before the product is launched. According to QuantumScape, battery testing will begin in 2023 and it will be available for commercial use by 2025. The company’s management also forecasts an adjusted EBITDA loss until 2027.

Microvast Holdings has a market cap of $2.92 billion

Microvast designs, develops, and manufactures battery systems for electric vehicles and energy storage systems. The stock is currently valued at a market cap of $2.92 billion.

Microvast’s revenue in Q2 of 2021 grew by 53.8% year over year to $33.4 million. But its net loss also expanded from $7.9 million in the prior-year period to $27 million. Microvast attributed the ongoing shortage in semiconductor chips, supply chain inefficiencies, and rising costs of raw materials to its widening losses in Q2.

The company’s management expects revenue to grow between 35% and 44% in 2021 while Wall Street forecasts sales at $143.53 million this year. Analysts also expect sales to grow by 79% to $257 million in 2022.

Microvast continues to reinvest in business expansion projects that include building new production facilities and allocating funds for research and development. The company claims it has secured over $1.5 billion in contracts through 2027 and forecasts sales to touch $2.3 billion by 2025.

The Verdict

Shares of QS and MVST have lost significant momentum in the last few months. While MVST has fallen over 60% from its 2021 high, QS is down 75% . The two companies carry significant risks but are also poised to derive impressive gains in the upcoming decade. Currently, I believe MVST is the better buy.  That’s because it has strong revenue growth and better visibility than QS, which is still pre-revenue.

QS shares fell $0.01 (-0.05%) in after-hours trading Wednesday. Year-to-date, QS has declined -75.60%, versus a 20.58% rise in the benchmark S&P 500 index during the same period.

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